In the banking industry, it is desirable to maintain a certain percentage of core deposits. Core deposits are deposits that do not change significantly in amount with fluctuations in the interest rate paid on the deposits. Savings account deposits are one example of a bank's core deposits. In some circumstances a bank may seek out additional sources of funds. For example, banks often rely on non-core funding sources, such as brokered CDs. Brokered CDs are offered by a bank to retail customers through a deposit broker. Brokered CDs are less stable as a source of funds for banks than core deposits because depositors in brokered CDs are typically sensitive to interest rate fluctuations.
In the United States, the percentage of stable deposits affects the bank's ability to maintain a favorable regulatory rating. Core deposits are considered stable, but non-core deposits, including brokered deposits, are considered less stable. Thus, if a bank maintains too high of a percentage of non-core deposits, such as brokered deposits, the bank may be sanctioned by a regulatory agency such as the Federal Reserve for federally chartered banks or a state banking agency for state chartered banks. Yet another problem associated with using brokered deposits is that banks are required to pay a broker's commission for brokered deposits. Thus, banks desire access to stable funds.
Depositors, on the other hand, may desire an account from which funds can be easily deposited and withdrawn, a characteristic referred to as liquidity, and desire that such an account also provide insurance in the event of bank failure. In the United States, the FDIC provides such insurance, but only up to $250,000 per individual per bank.
Pooled depositor groups, such as trust departments, pension funds, government entities, insurance companies, and any entities that are allowed to make deposits into a negotiated order of withdrawal (NOW) account, are constantly looking for safe, insured deposit vehicles for their funds. In addition, it is desirable for individual depositors in a pooled depositor group to be able to access funds without penalty on a short-term basis.
Conventionally, pooled depositor groups have invested in money market funds. However, investing in money market funds is undesirable because money market funds have historically paid low interest rates. Certificates of deposit are undesirable because money is not accessible on a short-term basis without paying a penalty. As a result, in order to fully insure a depositor's funds, a trust department is required to divide a depositor's assets in excess of $250,000 among multiple banks. Accordingly, in light of these difficulties associated with conventional cash management vehicles, there exists a need for an insured or collateralized deposit vehicle for pooled depositor groups.
Other entities, such as individual depositors (including corporations and human beings) may also seek insured, liquid deposit opportunities for their funds. These entities face the same difficulties as those described above for pooled depositor groups. Accordingly, there exists a need for an insured or collateralized deposit vehicle for individual depositors.
Yet another problem that exists in financial transactions is unrelated to insurance. It may be desirable to provide a method for depositors to spread deposits among multiple commercial banks for security reasons. For example, it may be desirable for depositors to deposit funds in commercial banks in different countries to avoid risks associated with economic and political instability. Currently there is no efficient system for matching depositors' deposit needs to commercial banks' cash flow needs when the banks are located in different countries.
Accordingly, there exists a long felt need for improved methods and systems for allowing depositors to distribute deposits among commercial banks while at the same time providing banks with funds that are considered stable enough to avoid sanctions from regulatory agencies.